Tuesday 13 July 1999 10.54 EDT
First published on Tuesday 13 July 1999 10.54 EDT

After months of hype, Dixons stuck a much lower than expected price tag yesterday on the stock market sale of its Freeserve internet business, giving a hint of conservatism to Europe's first substantial internet flotation.

Announcing two deals to boost e-commerce revenues, Freeserve at the same time disclosed that John Pluthero, the Dixons boss who came up with the idea, will receive a £1m bonus in free shares.

Dixons will offer stock at between 130p and 150p a share, valuing Freeserve at up to £1.5bn. This contrasts with earlier City valuations as high as £2.4bn. Although the issue has been largely targeted at institutional investors, 114,000 people registered online for a prospectus and shares application. The minimum application for private investors is £250.

The float will make Freeserve Europe's largest publicly traded net company. The decision to offer shares at a discount comes amid investors' disquiet over the need for Freeserve to compete in markets such as e-commerce and online advertising, where it has yet to become fully established and where it could face stiff opposition from bigger media groups.

However, the valuation also buoyed up confidence among analysts that the shares will rise sharply when they begin trading later this month.

Dixons is selling 18.25% of Freeserve, with proceeds of between £229m and £264m split between the two companies.

Aside from free shares Mr Pluthero, Freeserve's chief executive, is being given share options which pay out £10,000 for every 1% rise in Freeserve's market capitalisation. His basic salary is £200,000.

Mr Pluthero will be able to exercise 25% of the options after two years and another 25% a year after that. The remaining 50% can be exercised four years after flotation.

Freeserve announced that it had bought Babyworld, an internet business providing information and online shopping to pregnant women. The company is paying £3.7m in cash and Freeserve shares.

Freeserve has also signed a deal with HFC Bank, allowing the bank to market a credit card to Freeserve customers. Freeserve will receive exclusivity payments of £5m over five years as well as sums for accounts opened and a share of transaction revenues.

The deals are in line with Freeserve's intention of reducing its dependence on telecoms revenue in favour of advertising and e-commerce.

The prospectus includes an extensive health warning, which details Freeserve's vulnerability to infrastructure breakdown. The analysis is provided by Planet Online, a subsidiary of Energis which provides Freeserve with its telecoms service.

The list of 43 "risk factors" also discloses that Freeserve's business strategy is unproven, that future losses are expected, that there is no intention of paying cash dividends for the foreseeable future and that the company may face fierce competition from telecoms and media companies.

In addition, the prospectus warns investors that telecoms watchdog Oftel may change the regulatory regime, and thus reduce related revenues.